Recreational Marijuana

A stack of cash collected from a Colorado marijuana store sits on a table at a security firm in this file photo. Marijuana businesses in Colorado have generated about $63 million in taxes in 2014, the first year of legal recreational marijuana sales.
(Photo: Trevor Hughes/USA TODAY)

Colo. pot users helping build schools with tax dollars

Feb 20, 2015

USA Today - DENVER – Colorado's marijuana users are helping to buy new roofs, boilers and security upgrades for public schools across the state as the first round of special pot taxes gets allocated later this year.

"The people who were smoking marijuana before legalization still are. Now, they're paying taxes," Gov. John Hickenlooper said.

Overall, Colorado collected about $63 million in marijuana taxes in 2014 on an industry worth about $700 million. Much of that tax money goes directly into the state's general fund, not into the specific school-construction account. The school-construction money comes from a 15% tax levied on wholesale sales from growers to recreational marijuana retailers. Much of the rest of the tax money is being dedicated toward drug-abuse education, research and substance abuse treatment. Because Colorado was the first state to legalize and tax recreational marijuana sales, lawmakers across the country are closely watching its experiences.

A copy of a receipt from a Denver marijuana store shows the taxes paid on the transaction. (Photo: Trevor Hughes/USA TODAY)

"It is money we're trying to put to good use," said Sen. Pat Steadman, a Democrat and member of the Colorado Legislature's budget-writing committee. "We had no tax money to combat these ills when it was being sold illegally."

A delegation of Vermont policymakers visited Denver this month as the Green Mountain State considers legalization, the latest in a string of visitors curious to better understand how Colorado is handling the end of marijuana prohibition. Driving the Vermont delegation's visit is an independent report suggesting Vermont could see new taxes revenues worth $20 million to $75 million annually, in part paid by pot tourists from Massachusetts, New York and New Hampshire.

"Our assumption is that it would take the industry a few years to ramp up," said Scott Newell, director of the office of capital construction for the Colorado Department of Education. Washington state, which has also legalized recreational marijuana, also expects to see its tax collections grow over the coming years. Washington expects to collect about $694 million in state revenue through the middle of 2019, according to state budget projections, although it collected only about $40 million in recreational marijuana taxes in 2014.

In Colorado, Newell's office oversees the marijuana money being dedicated toward school construction. He said he expects to have about $17 million to hand out in this first round, with the $40 million annual allotment available in a few years. In Colorado, a small rural, public charter school could be built for $10 million, he said, while an urban high school could cost $100 million or more.

Colorado policymakers in 2014 discovered that far fewer people than expected switched from medical marijuana to recreational marijuana once it was legalized Jan. 1, 2014. Medical marijuana is taxed at a far lower level, and most heavy users opt to spend $15 on a state-issued "red card" allowing them to buy medical pot. In most cases, the marijuana itself is exactly the same. A study commissioned by the state found that in some ski towns, tourists were buying 90% of the recreational marijuana sold.

In part because medical users aren't switching, the state's tax collections are below predictions. And home-growers are exempt from the state's tax system since they're not legally allowed to sell their crops, although some clearly do, according to police.

A state study said that gray market of home-growing is a factor in dragging down tax collections, since illegal transactions remain untaxed.

Legalization advocates say there was always bound to be growing pains, but they point out the irony that some Colorado policymakers are peeved the state collected less marijuana tax than expected. This is an industry, after all, that operated totally illegally just over a year ago.

"There are hundreds of millions worth of marijuana sales now taking place in licensed taxpaying businesses, instead of on the underground market," said Mason Tvert of the Marijuana Policy Project, which backed Colorado's legalization efforts. "The tax revenue is a bonus but our overall goal was to eliminate the underground market."